Xstrata digs deeper in bid battle for Falconbridge

The Anglo-Swiss mining company Xstrata has upped the ante in the takeover battle for Canada's Falconbridge by raising its cash offer to C$19.2bn (£9.1bn). It has urged the target company's shareholders to tender shares immediately.

Xstrata, which already holds a 20 per cent stake in Falconbridge, is competing with Canada's Inco to buy Falconbridge.

Inco's bid is supported by Phelps Dodge, the American copper miner that raised its bid for a combined Inco and Falconbridge to C$41bn on Sunday, which would be the largest ever mining takeover if the bid succeeds. A fifth player, Teck Cominco from Vancouver, has also tabled a bid for Inco, but does not support the Falconbridge deal.

In the wake of the increased Inco/Phelps Dodge bid, Xstrata increased its bid by about 7 per cent to match Inco's offer. Xstrata offered C$62.50 in cash per share, compared with its last bid of C$59.

In addition, Xstrata will honour Falconbridge's payment of a special cash dividend of C$0.75 a share. Including the dividend, the bid values the entire issued share capital of Falconbridge at C$24.1bn.

Significantly, Xstrata's offer is no longer subject to a minimum tender obligation. Xstrata thus invited shareholders to tender shares "without further delay". It is also entitled to buy up to 5 per cent of Falconbridge shares in the open market later this month. It will pay for any tendered shares after it has received approval from the Canadian regulators and its own shareholders at a meeting to be held on 14 August.

Mick Davis, Xstrata's chief executive, said that the company benefited from a "C$7 advantage" as a result of its existing stake. That put Xstrata in a "unique position of being able to offer C$63.25 per share, a price that is simply more than any other company can justify under any realistic commodity price", Mr Davis said.

Xstrata has also argued that the rival Inco offer consists of a majority payment in shares. The value of Inco's bid is thus dependent on its share price, which has been boosted by the Teck Cominco and Phelps Dodge bids staying at current levels.